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Profit influencing factors

What are profit influencing factors

Profit influencing factors in a production company includes production efficiency, losses and costs. Production efficiency is number of units produced per hour. Losses are production losses, HSE losses, material damages and loss of market reputation. Costs are investment costs, operating costs and maintenance costs. These factors will influence on each other and must be optimised together to achieve maximum profit for the production company. The product manufactured in the production company could be oil & gas, newspapers, reports etc. A profit must be achieved during the production lifetime (blue area larger than the red area in the figure below).

Figure 1: Profit influencing factors

More about each subject follow.

Production efficiency

Production efficiency (PE) is number of units produced per hour. What you believe is maximum production efficiency may not be the real limit. The production rate will increase by improving the performance of existing production equipment or by using new technology. The optimal performance must be found before “numbers” can be compared to each other between companies. Note that efficiency may be limited by limited market needs (not possible to sell more than requested from the market). Maximum production efficiency should never be set without evaluating losses and costs. Measured production efficiency in oil companies is the % of the production potential, thus the maximum production efficiency minus losses due to reduced availability (downtime), bad performance (reduced number of units produced per hour) and bad quality (products not within the specification).

Losses

No production processes are perfect. There will always be losses reducing the company’s profit but the losses can be minimized.

Production losses

Production losses includes reduced availability, performance and quality. Reduced availability could be planned downtime like preventive maintenance and planned corrective maintenance. An example of planned maintenance is revision stops. The production is shut down for several days to execute maintenance activities. In this period there is 0% availability. This shutdown will have a great influence on the annual availability. Other types of reduced availability are unplanned downtime like unplanned corrective maintenance and production change-over like changing production equipment to a new product. Reduced performance could be less production during the run-up and run-down phase. Reduced quality is when production is not in accordance to requirement specifications, e.g. wreck or too wet gas from a processing plant.

HSE losses

HSE losses include personnel injuries and deaths, health effects and environmental damages. The costs will be related to e.g recovery costs and overtime for other employees. Normally there is external requirements like laws, regulations, standards and client contracts. HSE work will always have a cost, but at the same time reduce HSE losses if properly executed. High quality HSE work will actually increase the profit for the company. A company that cannot take the costs for high quality HSE work should stop their business. High HSE losses is not an option.

Material damages

Material damages are physical damages on properties and equipment. Reset requires replacement or repair costs.

Loss of market reputation

Loss of market reputation is often forgotten in risk analyses. Some events will have minimal effect on the business if not publically known, but may have drastic effects like boycott if known by the public. Worst case is probably when an incident has occurred, the company tries to keep the incident secret for the public, but after some time the incident becomes publically know. In this situations the company will have a severe problem with their reputation.

Costs

All companies will have investment-, operating- and maintenance costs. Investments like buildings, platforms and production equipment are required to run any business. Operators are required to run the production process, even if such personnel is reduced to a minimum in high cost countries due to high wages. Maintenance personnel are required to execute preventive and corrective maintenance (prevent and repair failures), even if such personnel is reduced to a minimum in high cost countries due to high wages.

Maintenance costs

Typical maintenance costs related to man-hours are:

  • Planning
  • Preventive maintenance execution
  • Corrective maintenance execution
  • Data analysis
  • Meetings
  • Education
  • Sickness absence

Typical maintenance costs related to direct expenses are:

  • Spare parts
  • Storing
  • Utility equipment
  • Tools
  • External man-hours

The maintenance costs can be reduced by more reliable production equipment and more sensors. Anyway, these action can not fully substitute humans. Maintenance costs are normally high during run-in and when the equipment goes into the wear-out period. The costs are highly dependent on the quality of the maintenance activities.

Finally, note that cost reduction does not equal increased profit.

Updated: 05.12.2012

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